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© 2005 Wiley 1
Chapter 4 –Supply Chain Management
Operations Managementby
R. Dan Reid & Nada R. Sanders2nd Edition © Wiley 2005
PowerPoint Presentation by R.B. Clough - UNH
© 2005 Wiley 2
What is a Supply Chain?
The network of external suppliers, internal processes, and external distributors, and the links connecting them, that deliver a finished product or service to the customer.
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A Basic Supply Chain
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Supply Chain Management
Supply Chain Management entails: Making decisions regarding the
structure of the supply chain Coordinating the movement of goods
and delivery of services Sharing information between
members of the supply chain.
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SCM Factors SCM must consider the following trends,
improved capabilities, & realities: Consumer Expectations and Competition –
power has shifted to the consumer Globalization – capitalize on emerging markets Information Technology – e-commerce,
Internet, EDI, scanning data, intranets Government Regulations - like trade barriers Environment Issues – e.g. waste minimization
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Components of a Typical Supply Chain
ExternalSuppliers
InternalFunctions
ExternalDistributors
INFORMATION
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External Suppliers External suppliers provide the
necessary raw materials, services, and component parts.
Purchased materials & services frequently represent 50% (or more) of the costs of goods sold.
Suppliers are frequently members of several supply chains – often in different roles.
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External Suppliers Tier one suppliers:
Directly supplies materials or services to the firm that does business with the final customer
Tier two suppliers: Provides materials or services to tier one
suppliers Tier three suppliers:
Providers materials or services to tier two suppliers
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Internal Functions Vary by industry & firm, but might
include: Processing Purchasing Production Planning & Control Quality Assurance Shipping
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Logistics & Distribution Logistics: getting the right material to
the right place at the right time in the right quantity: Traffic Management:
The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products
Distribution Management: The packaging, storing & handling of products in
transit to the end-user.
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Dairy Products Supply Chain
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Vertical Integration
A measure of how much of the supply chain is controlled by the manufacturer. Backward integration:
Acquiring control of raw material suppliers.
Forward integration: Acquiring control of distribution channels.
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Outsourcing Entails paying third-party suppliers to
provide raw materials and services, rather than making them in-house.
Outsourcing is increasing as many firms try to focus their internal operations on what they do best.
© 2005 Wiley 14
Insourcing vs. Outsourcing What questions need to be asked
before sourcing decisions are made? Is product/service technology critical to firm’s
success? Is operation a core competency? Do you have the capital to provide capacity &
keep the process current? Will outsourcing extend lead times and limit
flexibility? Can others do it for less cost and better
quality?
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Purchasing’s Role in SCM
Purchasing role has attained increased importance since material costs represent 50-60% of cost of goods sold Ethics considerations Developing supplier relationships Determining how many suppliers Developing partnerships
Industry trend is to a much smaller supplier base. Why?
© 2005 Wiley 16
Partnering with Suppliers
Involves developing a long-term, mutually-beneficial relationship: Requires trust to share information,
risk, opportunities, & investing in compatible technology
Work together to reduce waste and inefficiency & develop new products
Agree to share the gains
© 2005 Wiley 17
Supplier Relationships and JIT
Use single-source suppliers when possible Build long-term relationships Work together to certify processes Co-locate facilities to reduce transport if
possible Stabilize delivery schedules Share cost & other information Early involvement during new product
designs
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The Role of Warehouses General Warehouses:
Used for long-term storage of goods Distribution Warehouses:
Transportation consolidation: Consolidate LTL into TL deliveries
Product mixing & blending: Group multiple items from various suppliers
Improve service: Reduced response time Allow for last-minute customization
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Information Flow in Supply Chains
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Information Sharing
Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing campaigns
Inaccurate or distorted information leads to the Bullwhip Effect
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The Bullwhip Effect If information isn’t shared, everyone has
to guess what is going on downstream. Guessing wrong leads to too much or too
little inventory: If too much, firms hold off buying more until
inventories fall (leading suppliers to think demand has fallen).
If too little, firms demand a rush order & order more than usual to avoid being caught short in the future (leading suppliers to think demand has risen).
© 2005 Wiley 22
Short-Circuit the Bullwhip
Make information transparent: Use Electronic Data Interchange (EDI)
to support Just-In-Time supplier replenishment
Use bar codes & electronic scanning to capture & share point-of-sale data
Eliminate wholesale price promotions & quantity discounts
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Electronic Data Interchange The most common method of using
computer-to-computer links to exchange data between supply chain partners in a standardized format.
Benefits include: Quick transfer of information Reduced paperwork & administration Improved data accuracy & tracking
capability
© 2005 Wiley 24
Integrated SCM Implementing integrated SCM requires:
Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through
partnerships Possible Supply Chain Objectives
Reduce costs, improve quality Reduce lead time and inventory Reduce time to market Increase sales Improve demand data/forecasting
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